INDUSTRY INSIGHTThought Leadership

Plastic packaging: Accelerating the pace of the materials transition

By Rob Gilfillan, Head of Plastics, Fibres and Recycling, Wood Mackenzie

Just as the energy transition looks at how we transform how we power our planet, a materials transition is also happening in how we consume products, and in particular virgin-derived plastic packaging. Despite multiple drivers, from legislation to industry innovation, to reuse, reduce and recycle consumer packaging, this sector is often cited as the key culprit in plastic waste. Can these drivers accelerate the pace of change and reduce our dependency on virgin plastic?

There is no single silver bullet solution to reduce our global consumption of virgin-derived plastic. Wood Mackenzie forecast total global demand for plastic primary packaging to steadily increase from 115 million tons (Mt) in 2023 to 208 Mt by 2040. This long-term growth is supported by the continued urbanization and a growing middle class in Asia, predominately in China and India. To meet this demand growth, we forecast a 49% increase in virgin resin production over the same period. We also expect to see the share of total demand met by recycled content significantly increase from 29% in 2023 to 41% by 2040.

Global polymer demand outlook: base case and waste reduction scenario

Source: Wood Mackenzie

Accelerated waste reduction scenario

What happens if we are more ambitious with our waste reduction assumptions and to quantify the impact on virgin plastic demand on a more aggressive scenario?

First, let us assess the key drivers impacting polymer demand in consumer packaging and the impact, both from a prudent base case outlook and from an ambitious waste reduction scenario.

Multiple factors contribute to eliminating the use of plastic packaging, and combined with substitution and reuse/refill, up to 25 Mt (or 12%) of global plastic demand could be removed by 2040. This scenario curtails virgin resin production by 21%, with Europe and North America expected to show a significant reduction in demand for virgin plastic; driven by the notion that legislation, such as the EU’s PPWR, provides an effective framework to drive change and crucially, successfully implement it. It is political paralysis that could delay and therefore lessen the impact of key legislation.

Drivers of change

While legislative mandates will heavily influence recycled content uptake, there is still a significant challenge both in terms of the investment required and the practicality of scaling up collection, sorting and recycling infrastructure to meet legislative targets. Mechanical recycling is expected to hit virgin demand for rigid packaging the hardest, while chemical recycling is critical to reduce virgin demand in contact-sensitive flexible packaging.

Substitution trends and shifts in packaging formats could accelerate via legislation. While rigid packaging has a clear advantage today over flexible formats in terms of recyclability, virgin resin reduction mandates could promote substitution away from rigid to flexible packaging. Substitution also opens the debate to alternative materials, such as paper which is driven by consumer perceptions around sustainability, but technical constraints and cost may impede any considerable progress taking place.

Lightweighting from rigid to flexible formats is far from a new concept, having been practiced for decades to reduce material and production costs, with developed markets such as the EU and the US further along this process, compared to emerging markets. With such an established trend, the expected impact on polymer demand is relatively small compared to other measures.

Reuse/refill mandates could have an overall limited downward impact on polymer demand, for example where rigid bottle applications are replaced with flexible refillable pouches. It is important to note that the legislative focus is primarily towards the food service sector and secondary packaging.

Packaging formats containing polymers produced using feedstock derived from biomass is yet another alternative that could impact fossil-fuel-based virgin plastic demand. However, high costs and scalability issues, that may lead to adverse environmental issues, have led to low adoption levels. Another headwind is that bio-based content may not count toward recycled content targets; the EU’s PPWR legislation is still undecided, while the Ellen MacArthur Foundation (EMF) does not count bio-based content in its virgin plastic reduction targets.

While carbon targets are not explicitly mentioned, they may come in a second wave of legislation; the current focus is on circularity. Incentivizing low-carbon packaging alongside implementing new packaging or recycled content has the potential to cause issues; the most recyclable packaging or packaging with the highest recycled content may not have the lowest carbon footprint.

Brand commitments stalled during the COVID-19 pandemic but as per the EMF’s 2022 global commitment report, companies accounting for 20% of all plastic packaging have ambitious targets looming in 2025; 26% post-consumer recycled (PCR) content used in packaging and a 2.4 Mt reduction in virgin plastics. To achieve these 2025 goals, the use of PCR content needs to grow by CAGR 27% p.a. (compared to 10% increase over 2020-21) and virgin plastic usage must decrease at CAGR 5.5% p.a. after a notional 0.3 Mt decrease in 2021.

Impact by polymer

Given the exposure PET has to the bottle sector and the current maturity of the RPET industry, our global RPET recycling rate nears 70% in our base case outlook, this softens the impact on virgin PET demand in the scenario. Polyolefins have a much broader exposure to a range of packaging applications and are therefore more susceptible to the compound effect of multiple drivers. Eliminating demand via refill at home and refill as a service is particularly prevalent in our polyolefins outlook.

Change in global virgin demand by polymer: scenario vs base case outlook

Source: Wood Mackenzie

Impact on end-use applications

An accelerated scenario impacts rigid packaging, and in particular other non-bottle applications, the hardest; driven by improvements in mechanical recycling infrastructure such as sorting technology and deposit return schemes. Mechanical recycling already dominates the bottle market, limiting any further impact of an accelerated scenario.

The impact on virgin flexible packaging demand hinges on developing efficient chemical recycling systems and could also be the most exposed application if the EU’s PPWR mandate is achieved. Unsurprisingly, the expected impact on virgin flexible packaging demand is concentrated in Europe. We also expect the trend from multi-layered packaging to mono-material packaging to continue if recycling mandates are to be achieved.

Is an accelerated outlook achievable?

Numerous drivers have low demand reduction impacts, and it is the variety of strategies at play that, if implemented effectively, will drive the pace of change. Unique solutions will be applied to align with different legislation initiatives, although implementation will vary on geographical, social, and economic viability. The uncertainty scores used in this analysis are of course fluid metrics and if chemical recycling technology and economics evolve rapidly that would yield larger virgin resin demand reductions [than modelled here] but would also lessen the impact of other drivers.

Europe is the key region and getting common approval among the EU member states is critical to the success of its PPWR mandate. If it is not agreed by 2024, the legislative process will have to restart putting a serious dent in achieving waste reduction targets.